Time Warner Inc., announced today a tentative settlement to resolve a major securities class action lawsuit stemming from its merger with AOL and has set aside reserves of more than $2.4 billion to cover the costs.
"By working to resolve these issues now," said the company's chairman and CEO Dick Parsons, "we're aiming to avoid the costs, risks and distractions of protracted litigation. Even after considering the reserve, our balance sheet remains strong."
The company agreed in March to pay regulators $300 million to settle long-running civil fraud charges related to AOL online advertising deals that helped the company artificially inflate revenue. It has also agreed to pay $150 million to settle a Justice Department probe.
Most of the lawsuits and allegations against the company stem from more than two years of investigation into accounting practices and dealmaking activities at Dulles-based America Online Inc. before and after its January 2001 merger with Time Warner.
A statement from Time Warner this morning said under the tentative settlement of the class action, $2.4 billion will be paid into a fund for members of the class.
Samuel D. Heins, a Minneapolis-based lawyer for the class plaintiffs said in a statement that "We believe this settlement is not only a significant recovery for stockholders, but also demonstrates the important role of securities fraud litigation in maintaining integrity in capital markets. We look forward to presenting the settlement for the Court's approval."
Time Warner said it hoped to have the $300 million previously paid to the Securities and Exchange Commission added to the settlement fund.
The company faces other unsettled litigation, including shareholder actions and lawsuits alleging violations of federal pension laws (ERISA.) Time Warner has established an additional reserve of $600 million in connection with those matters, bringing the total set aside to about $3 billion.
The announcement accompanied Time Warner's financial results for the second quarter ended June 30, which included an announcement of a $5 billion stock repurchase program.
It said revenues in the quarter decreased 1 percent over the same period in 2004 to $10.7 billion, with declines at Filmed Entertainment and AOL offset "almost entirely" by growth at its cable and publishing segments.
For the three months ending in June, the company posted a net loss of $321 million, or 7 cents a share, versus a profit of $777 million, or 17 cents a share, for the comparable period a year ago.